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Sharing costs to weather a tough economy

BY GARY DYMSKI | gary.dymski@newsday.com

8:45 PM EST, February 28, 2009

Holbrook builders Art Donnelly, right, Tom Giaquinto, have begun sharing space and workers in an attempt to cut costs and weather the economic downturn. Donelly owns Legacy Builders & Remodelers, and Giaquinto owns Regal Home Improvements.
(Photo by Ed Betz)

Midway through January, Tom Giaquinto was pretty sure he was going to fold his company. With revenues down nearly 50 percent from last year, the outlook appeared grim for Regal Home Improvements, Giaquinto's Holbrook remodeling business.

Today, prospects are considerably better. It's not quite business as usual, but at least Giaquinto remains in business. His optimism is not tied to a new project but rather to an innovative proposition from a competitor, Art Donnelly, owner of Legacy Builders & Remodelers, also based in Holbrook.

To help Giaquinto reduce overhead, Donnelly offered to share his showroom and some parking space for company vehicles. Just a little help, Donnelly says, for a fellow contractor.

"Everyone is looking to cut costs these days to stay healthy," said Donnelly, who also is board chairman for the Long Island / New York City chapter of the National Association of the Remodeling Industry (NARI), a Suffolk County-based trade association. "Tom's lease was coming up, and he was talking about leaving the industry. . . . It made sense, in this economy, to pool some resources."

Sharing purchasing power
Giaquinto, who has run Regal since 2001, said he's saving about $3,500 a month in rent and utilities. Both remodelers are sharing some purchasing power, too. Donnelly -- who is not charging his colleague rent -- has access to Giaquinto's dealer discount for cabinetry, and Giaquinto has the same buying advantage for Legacy's line of replacement windows.

"I think it's going to work out pretty good," said Giaquinto, whose former office and showroom was about 2,500 square feet. He started sharing about 2,000 square feet at Legacy's Holbrook location the second week in February.

Reducing cost in hard economic times is just one small way a business can remain afloat, said Kaushik Sengupta, an associate business professor at Hofstra University in Hempstead.

"This type of pooling risk has been around a long time," Sengupta said, "especially on the product and manufacturing side" where businesses often share warehouse space and distribution. "It makes a lot of sense."

The Go-To Group
Bob Kocis says such practicality is behind his latest networking endeavor, the Go-To Group, nearly a dozen Huntington-area businesses that cater to household needs. The group includes a real estate agent, caterer, painter, interior designer, Web-site developer, florist and landscaper.

"It's a one-stop shop for home-related services," said Kocis, owner of LIRemodel.com, and a contractor for more than 20 years. The group is in the process of creating a Web site and securing office space, Kocis said, but already it has generated $300,000 worth of business in a little more than month, just by word-of-mouth advertising.

"In theory, we are sharing our circle of influence," Kocis said.

The concept allows service-related businesses to exchange client lists, referrals and networking opportunities. Once the Web site is up and running, Kocis said, prospective customers can sign up to receive a monthly newsletter via e-mail. "Marketing costs are shared by more than 10 companies instead of one," he said.

Small businesses looking to be creative in generating revenue often resort to collaborative efforts, Sengupta said. "The envelope for what companies can share is pretty broad," he said. "In the long run, it's about spreading out cost and reducing risk."

North Fork wineries long have shared production services, said Richard Pisacano, owner of Roanoke Vineyards, a small Riverhead winery. Pisacano's wine is produced at WÃÂ¶lffer Estates, where he is vineyard manager.

"Sharing from the production end is a common dynamic in the wine industry," he said. "It's a way for small farm wineries to produce wines without having to build their own production facilities."

Instead of financing a $1 million production facility, Pisacano pays $20 to $30 a case to have WÃÂ¶lffer make nearly 3,000 cases of Roanoke wines annually. About a dozen other smaller independent wineries can opt for production services from Premium Wine Group, a Mattituck winemaking facility established in 2000, he said.

Pooling resources
In a poor economy, the advantages of pooling resources are apparent, Sengupta said, but conflicts can arise when the economy starts to recover. One partner in the arrangement, he said, might start to intrude on clients or opportunities of the other.

"You can see what the other guy is doing," he said, "and start cannibalizing sales of someone who is supposed to be a partner. . . . There is a greater danger in this when the businesses are similar in what they do."

Sengupta said businesses that share resources should try to agree beforehand on what services each will offer and then respect the agreement. Another concern could be when to dissolve the association. "Some issues are somewhat nebulous and hazy," he said. "So people should try to be clear with things upfront."

Remodelers Donnelly and Giaquinto don't anticipate such conflict.

"We're not competitors in the strict sense," Donnelly said. "I operate more on the North Shore, and Tom stays Central to the South Shore."

So far, Donnelly said, each company has been able to use workers from the other. Donnelly has two full-time carpenters, and Giaquinto has two full-time workers.

Kocis envisions not conflicts but more referrals. A florist might have a client that needs a landscaper, he said.

"The whole concept is to feed vendors," Kocis said, "and at the same time offer a high quality of service to customers."